Internal capital market efficiency and the diversification discount: The role of financial statement comparability

Jia†Chi Cheng and Ruei†Shian Wu

Journal of Business Finance & Accounting, 2018, vol. 45, issue 5-6, 572-603

Abstract: This paper investigates how financial statement comparability affects the efficiency of internal capital markets and diversification discounts in multi†segment firms through monitoring mechanisms. Previous studies suggest that financial statement comparability improves transparency and reduces the cost of information processing, mitigating information asymmetry between managers and shareholders. Using measures of comparability and internal capital efficiency, we find that financial statement comparability has a strong positive influence on internal capital market efficiency. Further, we find that by improving the efficiency of internal capital markets, financial statement comparability indeed mitigates diversification discounts. Especially, the effect of financial statement comparability is more pronounced for firms with high information asymmetry or operating environment volatility. The results support our arguments that financial statement comparability enhances the efficiency of internal capital markets and increases firm value in diversified firms by mitigating agency problems via monitoring and corporate control mechanisms.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://doi.org/10.1111/jbfa.12307

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jbfnac:v:45:y:2018:i:5-6:p:572-603

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0306-686X

Access Statistics for this article

Journal of Business Finance & Accounting is currently edited by P. F. Pope, A. W. Stark and M. Walker

More articles in Journal of Business Finance & Accounting from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().